Digital Auto Report 2019 - Strategy&

The 2019 Strategy& Digital Auto Report

Time to get real: opportunities in a transforming market

The 2019 Digital Auto Report: addressing market reality

Key facts and main content

Key facts

Eighth annual Digital Auto

Report, developed by Strategy&

Global study with a focus on

the US, EU and China

Quantitative market outlook

based on detailed research

Interviews with key industry

executives at OEMs and suppliers, leading academics and industry analysts

Chapter 1

New value opportunities

Chapter 2

Market dynamics & technology

Chapter 3

Value chain & capability shifts

Strategy& | PwC

? The search for new business models as technology investment drives up costs

? What are the value opportunities in alternative ownership models?

? How do customers chose between mobility options?

? Overview of the current state of connected, autonomous, shared and electric (CASE) technologies

? When will these technologies ramp up? ? How is regulation influencing progress?

? How can suppliers reposition themselves in a transforming market?

? What ne organizational structures are required to address hardware, software and services?

? How can auto makers and suppliers close the digital skills gap?

2

The auto industry's dilemma: traditional profit pools no longer match the rising level of tech investment required

Summary ? the search for profitable new business models

? The total number of cars in use (parc) in Europe is forecasted to peak at 273 million in 2025 and to decline thereafter. The number will continue to increase in China and at a slower pace in the US

? During the same time period, the cost of vehicle content is going up ? electric powertrains and automated features could increase the Bill of Material (BoM) by between 20 and 40 percent by 2030

? Alternative ownership models and new revenue opportunities for OEMs are required to ensure customer affordability and economic returns for the industry: mobility spending is expected to be worth $1.2 trillion in Europe, the US and China by 2030, growing by more than 20 percent a year

? There will be a significant shift in value pools as OEMs and suppliers search for new business models. We estimate that profit share from traditional car sales, parts and aftersales will shrink from 70 to ~55 percent of total automotive market, while non traditional player profit shares could raise from 5 to ~25 percent by 2030

? As a result, intense efforts are needed by suppliers and OEMs to drive down technology costs in the coming decade ? a reduction of 65 to 75 percent of costs for advanced driver assistance systems (ADAS), for example

Strategy& | PwC

Note: Please refer to respective section for detailed assumptions and sources behind stated propositions

3

Connected, automated, shared, electric: what's driving the pace of digital change?

Summary ? technical readiness, consumers, regulation and economics dictate transformation speed

? Connected: sales of 5G enabled vehicles are expected to reach 16 million in the EU, US and China by 2030. However, we believe connected services mainly make a positive contribution to user experience with little potential for OEMs and suppliers to make money directly from connectivity

? Automated: we still expect people movers with Level 4 autonomy to be operating in restricted areas at less than 50km/h by 2021, however we expect a delay until 2029 in highly automated Level 4/5 vehicles making it on to the road

? Shared: our research shows that 47 percent of European consumers would consider giving up their own car in favor of widely available and adequately priced autonomous robo-taxi services

? Electric: by 2030, 46 percent of new car registrations in China will be for electric vehicles. In Europe the figure will be 40 percent and in the US 35 percent. Internal combustion engines (ICE) still have the advantage when it comes to range, with only premium-priced fuel-cell electric vehicles able to compete

These changes have fundamental implications for OEMs and their suppliers. OEMs need strategies to reduce their R&D costs through partnerships, and to focus on developing new ideas while outsourcing non-core back-office, R&D and technology solutions.

We also believe five new sustainable roles for suppliers will emerge: as smart infrastructure enablers; automated shuttle-vehicle manufacturers; platform providers; mobility intelligence providers; and vehicle feature and demand providers.

Finally, new flexible and hybrid organizations need to be created, and due to the scarcity of people with the right skills, the auto industry must upskill its existing workforce to perform digital and data-management roles.

Strategy& | PwC

Note: Please refer to respective section for detailed assumptions and sources behind stated propositions

4

1 New value opportunities: alternative ownership models

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